The most important amendments and completions brought by Law no. 296/2023 in the tax law

On 27 October 2023, Law no. 296/2023 regarding certain fiscal budgetary measures with the purpose of ensuring long term financial sustenability for Romania was published in the Official Gazette.

Amongst the most important amendments we note:

Income tax and social security contributions

Salary income and assimilated

• The amendments brought to the Tax Code by Law no. 296/2023 align (starting with the income for November 2023), the salary tax incentives granted to  employees undertaking Software and Development activities (SD employees) with the ones applicable in the construction, agriculture and food industries. The incentives will apply until 31 December 2028.
• Thus, the income tax exemption granted to SD employees will be limited to the gross monthly incomes up to RON 10,000, inclusive.
• Moreover, the social charges related incentives for the above-mentioned industries has also been aligned as follows:
  • the exemption from paying health fund contribution and the partial exemption from work insurance contribution are eliminated for constructions, agriculture and food sectors;
  • the social security contribution rate for employees  undertaking Software and Development activities (SD employees) is reduced with the rate of the social contribution from privately managed funds (i.e., the Pension Pillar II system, in accordance with the provisions of  Law no. 411/2004 – currently 3.75%; from 1 January 2024 - 4.75%). Though, SD employees who wish to continue participating to the Pillar II pension fund (as per the provisions of Law no. 411/2004 on privately managed pension funds) will have the possibility to opt for it by filing a written request to the employer.
• Starting with the income related to January 2024, the new tax provisions provide that meal and holiday vouchers will be subject to health fund contribution.

Incomes from independent activities

• Starting with the incomes related to 2024, the Law 296/2023 introduces the possibility of deducting the health fund contribution when determining the taxable base for incomes from independent activities.
• Also, a new threshold of 60 national gross minimum wages is introduced for the health fund contribution.

Special tax on immovable and movable assets with high value

• As of 1 January 2024, for the individuals who own/jointly own residential buildings in Romania, if the taxable value of the respective building exceeds RON 2,500,000, a tax rate of 0.3% will be imposed on the difference between the taxable value of the building communicated by the local tax office through the tax decision and the threshold of RON 2,500,000.
• Also, for the individuals and legal entities owning cars registered in Romania with an acquisition value exceeding RON 375,000, a tax rate of 0.3% will be imposed on the difference between the purchase value and the threshold of RON 375,000. The income tax is due for a period of 5 years starting with the tax year when the car is acquired or, for those previously acquired – for the remaining time until the end of the 5 years period.

Income from unknown sources

• Starting 1 July 2024, income from unknown sources will be subject to 70% income tax on the adjusted taxable base. The tax authorites will determine through a tax decision the income tax and the related late payment charges due.

Corporate Income Tax / Minimum Tax on Turnover

• Starting 1 January 2024, a minimum tax on turnover is introduced for taxpayers (other than credit institutions and legal persons carrying out activities in oil and gas sectors – for which special rules are applied, as detailed in the following sections) who record a turnover higher than 50,000,000 EUR during the previous year.
• Specifically, taxpayers that, for the reporting year, compute a corporate income tax cumulated from the beginning of the fiscal year/modified fiscal year to the end of the quarter/year of calculation, lower than the tax on turnover established according to the formula below, are obliged to pay the corporate income tax at the level of the minimum tax on turnover.
• The minimum tax on turnover is computed according to the formula: IMCA = 1%*(VT – Vs – I – A), where:
  • VT represents total revenue, calculated cumulatively from the beginning of the fiscal year/modified fiscal year to the end of the quarter/year of calculation;
  • Vs represents the amounts to be deducted,  calculated cumulatively from the beginning of the fiscal year/modified fiscal year to the end of the quarter/year of calculation, and include:
    • non-taxable revenues provided by art. 23 and 24 from the Fiscal Code;
    • revenues related to the cost of product stock;
    • revenues related to the cost of services in execution;
    • revenues from production of tangible and intangible assets which are not included in the indicator I;
    • revenues from subsidies;
    • revenues from compensation from insurance/reinsurance companies, for damages caused to goods representing stocks or own tangible assets;
    • revenues representing excise duties which have been reflected concomitently in the expenses accounts;
  • I represents the value of work-in-progress assets due to the acquisition/production of assets, recorded in the accounting records starting 1 January 2024, respectively starting with the first day of the modified fiscal year beginning in 2024;
  • A represents the accounting depreciation at historical cost of assets purchased/produced starting with 1 January 2024/first day of modified fiscal year beginning in 2024. The accounting depreciation of assets already included in the value of indicator I is not included in this indicator.
• If, further to applying the calculation formula for determining the minimum tax on turnover the result is negative, the minimum tax is zero.
• Taxpayers performing sponsorships and/or patronage actions can deduct the related amounts from the minimum tax due, at the minimum level between:
  • 0.75% of turnover;
  • 20% from corporate income tax.
• However, in case the minimum tax on turnover is due, the amounts representing corporate income tax exempt, reduced or other amounts which are deducted from the corporate income tax, according to special laws, cannot be deducted, and neither the reduction of corporate income tax according to GEO nr. 153/2020.
• Economic operators exclusively carrying out activities of distribution/supply/transportation of electricity or natural gas and which are regulated/licensed by National Energy Regulatory Authority are specifically exempt by herein minmum tax on turnover.

Additional tax for credit institutions

• Starting 1 January 2024, an additional tax is established for credit institutions - Romanian legal entities and Romanian branches of credit institutions - foreign legal entities.
• Credit institutions owe, in addition to the corporate income tax, a minimum tax on turnover computed by applying the following rates on the turnover (which is specifically defined):
  • 2% for the period 1 January 2024 - 31 December 2025 inclusively;
  • 1% starting with 1 January 2026.
• The tax on turnover is computed, declared and paid quarterly, as follows:
  • for quarters I – III, until the 25th inclusively of the month following the quarter for which the payment is made;
  • for quarter IV, until the 25th of March inclusively of the following year.
• For corporate income tax computation purposes, the minimum tax on turnover represents a non-deductible expense.

Additional tax for legal entities carrying out activities in the oil and gas sectors

• Starting 1 January 2024, an additional tax is established for companies operating in the oil and gas sectors and who recorded during the previous year a turnover higher than 50,000,000 EUR.
• Additional to the corporate income tax, the specific tax on turnover is computed according to the formula: ICAS = 0,%*(VT – Vs – I – A), where the indicators are already defined above.
• For corporate income tax computation purposes, the specific tax on turnover represents a non-deductible expense.
• The specific tax on turnover is computed, declared and paid quarterly, as follows:
  • for quarters I – III, until the 25th inclusively of the month following the quarter for which the payment is made;
  • for quarter IV, until the submission deadline of the annual corporate income tax return.
• The specific tax on turnover is applied for the period1 January 2024-31 December 2025 (respectively, for the period between the modificat fiscal year starting in 2024 and the modifical fiscal year ending in 2026, for taxpayers having modified fiscal year).
• Starting 1 January 2026/modifical fiscal year starting in 2026, taxpayers carrying out activities in oil and gas sectors will apply the minimum tax on turnover.
• Taxpayers carrying out activities in oil and gas sectors as well as activities of distribution/supply/ transportation of electricity or natural gas and which are regulated/licensed by National Energy Regulatory Authority do not include within the indicators VT, Vs, I and A from the computation formula when determining the specific tax the elements related to the activities of distribution/supply/transportation of electricity and natural gas.
• Taxpayers exclusively carrying out activities of distribution/supply/transportation of electricity or natural gas and which are regulated/licensed by National Energy Regulatory Authority are specifically exempt by herein specific tax on turnover.

Micro-enterprise income tax

• Starting 1 January 2024, micro-enterprise income  tax rates will be as follows:
  • 1% for micro-enterprises realising revenues that do not exceed 60,000 EUR inclusively and do not realise revenues according to the NACE codes listed below;
  • 3% for micro-enterprises realising revenues exceeding 60,000 EUR or carrying out activies, primary or secondary, coresponding to NACE codes 5832, 5829, 6201, 6209, 5510, 5520, 5530, 5590, 5610, 5621, 5629, 5630, 6910, 8621, 8622, 8623, 8690 (software development / editing, HoReCa, legal assistance, medical and dental assistance).

VAT

We detail below the most important changes brought by Law no. 296/2023 from a VAT perspective.

• VAT rates

The following changes in respect to the VAT rates are applicable as of 1 January 2024:

• Application of the reduced 9% VAT rate for the following transactions that currently qualify for the 5% VAT rate:
  • supply of housing as part of the social policy, including of the land on which they are built, as defined in the Fiscal Code. By exception to the above provisions, it is proposed to maintain the reduced 5% VAT rate between 1st of January and 31 of December, 2024, for legal acts concluded between 1st of January and 31 of December, 2023, that have as object the advance payment for the purchase of such houses. Regarding the definition of a house that can be inhabited as such at the time of delivery, additional criteria regarding the necessary facilities and finishes are added. The obligation to organize the Register of housing acquisitions with reduced VAT rate is maintained.
  • the supply and installation of photovoltaic panels, solar thermal panels, heat pumps, and other high-efficiency heating systems that meet specific parameters, including installation kits, as well as all separately purchased necessary components, intended for dwellings, central or local public administration buildings, buildings of entities under their coordination/subordination, excluding commercial companies. To benefit of the reduced VAT rate for these transactions, buyers have the obligation to perform a declaration on own responsibility, according to the model from Annex to the Fiscal code.
  • supply and installation of components for repairing and/or extending the systems mentioned in the previous point or the supply of these systems as integrated parts of construction deliveries or as optional additions to the supply of a construction. To benefit of the reduced VAT rate for these transactions, buyers have the obligation to submit a declaration on own responsibility, according to the model from Annex to the Fiscal code.
  • services consisting of allowing access to fairs, amusement parks and recreational parks which activities are classified under NACE codes 9321 and 9329, trade fairs, exhibitions, cinemas and cultural events, other than those exempt from VAT.
  • services consisting of allowing access to sports events.
• Application of the standard 19% VAT rate for the following supplies of services that currently qualify for the 5% VAT rate:
  • the right to use sports facilities, whose activities are classified under NACE codes 9311 and 9313;
  • the transportation of individuals for tourism or recreational purposes using specific trains or vehicles, including those pulled by animals, boats or utilizing cable transport installations.
• Elimination of high-quality food products from the application of 5% reduced VAT rate and implicitly, application of 9% reduced VAT rate or of standard 19% VAT rate, depending on the added sugar value.
• Application of standard 19% VAT rate for the following deliveries of goods which currently qualify for the 9% VAT rate:
  • non-alcoholic beer (including served as part of restaurant and catering services);
  • food with added sugar, for which the content of sugar is of minimum 10g/100g product, other than sweet bread (i.e., “cozonac” in Romanian language) and biscuits. It is applicable the definition of added sugar, introduced in the context of amendments brought by excise duties legislation.
• It is mentioned that the declaration on own responsibility for the application of 5% reduced VAT rate for the delivery of firewood, sawdust, waste, and wood scraps, under different shapes by the natural persons/ legal entities/other entities, as well as the delivery by these persons as final users for the use as sawdust heating fuel, of certain waste and wood scraps, must be given by the beneficiary.
• VAT exemption

Starting with 1st of January 2024, the VAT exemption recently introduced for: i) construction, rehabilitation, modernization of hospitality units from the public network; ii) delivery of medical equipment, machines, devices, and others like it; as well as iii) the adaptation, repair, rental and leasing of such goods to public hospitality units from the public network or the ones owned and used by non-profit entity remains applicable only if such transactions are performed towards nonprofit entities registered in the public Registry organized by NAFA.

It is eliminated the possibility of applying a direct exemption for such deliveries of goods/supplies of services, remaining applicable only the VAT exemption through VAT refund.

RO E-INVOICE SYSTEM “Business to Business”

The main legislative changes include:

• The obligation of taxable persons established in Romania to submit invoices through the RO e-Factura system, for B2B transactions having the place of supply in Romania, between 1st of January 2024 – 30th of June 2024, within 5 working days as of the invoice date/deadline for invoicing. During this period, the obligation to issue and transmit invoices according to article 319 of the Fiscal Code is also maintained.
• The obligation of non-established entities registered for VAT purposes in Romania, to submit invoices through the RO e-factura system, starting with 1st of January 2024, within 5 working days as of the invoice date/deadline for invoicing. The obligation to issue and transmit invoices according to article 319 of the Fiscal Code is also maintained for these transactions.
• Simultaneously with the introduction of the aforementioned obligations, the provisions regarding the reporting of invoice data for goods with high fiscal risk were repealed.
• For economic operators in the categories listed above, no fines are applied for not sending e-invoices through the RO e-factura system between 1st of January 2024 and 31st of March 2024.
• Starting with 1st of April 2024, fines between 1,000 RON and 10,000 RON will be applied for the non-transmission of invoices through the RO e-factura system, depending on the taxpayer size (e.g., large, medium-sized, small).
• Starting with 1st of July 2024 the obligation to issue and communicate electronic invoices exclusively through the RO e-factura system for B2B transactions performed by taxable persons established in Romania occurs. For these situations, the e-invoice is no longer subject to acceptance by the recipient.
• The receipt and booking of invoices by taxable persons recipients established in Romania, other than through RO e-factura system, for B2B transactions, is sanctioned with a fine equal to the amount of VAT included in the invoice received.

EXCISE

• Non-harmonized excise duties are introduced for:
  • products intended for inhalation without burning, containing tobacco substitutes, with or without nicotine of 1094.93 lei/kg;
  • non-alcoholic beverages with added sugar for which the total sugar level is between 5g - 8 g/100 ml of 40 lei/hl;
  • non-alcoholic beverages with added sugar for which the total sugar level is over 8 g/100 ml of 60 lei/hl.

Non-harmonized excise duties will also apply to products subject to non-harmonized excise duties contained in reserves delivered together with electronic cigarettes and other similar personal electric vaporization devices from NC code 8543 40 00.

For the last two categories of non-harmonized excisable products (non-alcoholic beverages), the obligation to notify the competent authority was introduced for the economic agents that produce, purchase from other EU member states or import such products.

• The added sugar is defined as sugar from cane, brown sugar, crystalline sucrose, invert sugar, dextrose, molasses, sugars from honey, molasses and syrups such as malt syrup, fruit syrup, malt syrup of rice, corn syrup, high fructose corn syrup, maple syrup, syrup of glucose, glucose-fructose, fructose, sucrose, glucose, lactose, hydrolyzed lactose and galactose added as ingredients, sugars in nectars, such as nectar from coconut flowers, date nectar, agave nectar, sugars from juices unsweetened fruit, fruit juice concentrate, sugars from fruit purees and jam.
• The excise duty level will change for all excisable products. The excise duties will be higher for all products in 2024, inclusive for the products for which the excise duty will be updated with the increase in the consumer price index which will be communicated by the National Institute of Statistics.
• New activities that are subject to contraventional measures regarding the excise duty regime have been introduced.

RO E-SIGILIU NATIONAL SYSTEM

• The National RO e-Sigiliu System is established for ensuring compliance with the traceability of road transport of goods on the territory of Romania.
• The application of smart seals and the monitoring of road transport of goods on the national territory is carried out by the National Fiscal Administration Agency and the Romanian Customs Authority based on a risk analysis.
• The procedure regarding the establishment of risk criteria, the application of smart seals and the monitoring of road transport of goods will be published later on.